Company denies its funds financed judges' prostitutes

The Shanghai Construction Group moved to limit the damage on Monday in its connection with a prostitution scandal that has led to the dismissal of four local judges.

Last week, the Commission for Discipline Inspection of the CPC Shanghai Committee said the judges were dismissed after soliciting prostitutes at an informal event organized by a manager at the construction company.

On Monday, the company said the manager did not use company funds to pay the prostitutes.

Guo Xianghua, a senior executive at one of the group's subsidiaries, not only purchased the services of prostitutes for the four judges at Shanghai High People's Court, he also paid for the group's dinner and the escort services of women karaoke employees at a local resort hotel on June 9.

Guo is the deputy general manager of the general management department at Shanghai Construction Group's No 4 Construction Co.

According to the group's annual report, its expenditures on receptions in 2012 was 178 million yuan ($29 million).

The prostitution scandal, revealed online by an anonymous and disgruntled blogger earlier this month, led to the dismissal of Guo and the four judges, who were also expelled from the Party.

In an e-mail reply to China Daily, the Shanghai Construction Group said no reimbursement requests for the reception were discovered.

In earlier interviews, You Weiping, secretary of the board of trustees at the construction group, said the use of company funds allotted for receptions needs the approval from the company's leaders. You said Guo didn't secure an approval to organize the reception.

The company's responses have drawn the ire of netizens in China.

"The No 4 Construction Co is cheating everyone," said a blogger. "It must have been reimbursed under another name because who would be so silly to write an invoice for money used to hire prostitutes for judges?"

Xiao Zhijun, executive deputy secretary-general of Shanghai Pudong International Finance Institute, said: "The fact that he wasn't reimbursed this time doesn't mean he wasn't reimbursed (for similar receptions) in the past. Maybe he just failed to ask for a reimbursement in time."

The scandal, one of the largest to hit China's judicial system in recent years, has shed light on how funds on receptions, which are often listed as major expenditures by listed companies, are used and whether the funds are used to bribe officials.

The funds, also called reception fees, are used by a company to pay for work-related social activities. The fees pay for banquets, dinners with clients and related transportation costs.

Annual reports showed that more than 10 Shanghai-listed companies spent more than 100 million yuan on receptions in 2012, with the top five all in the construction sector. China Railway Construction Corp, the largest engineering contractor in China, topped the list by spending 837 million yuan in 2012.

The scandal has also shed a light on the relationship between Shanghai Construction Group and the Shanghai court system. In recent years, according to public records, the Shanghai courts have never handled cases or lawsuits against No 4 Construction Co. The company was also involved in constructing part of the building that houses the Shanghai High People's Court.

In July 2002, the company reached a 142 million yuan agreement to build an office building for the court. The company was also involved in building projects for the city's admiralty court and an intermediate court.

The Shanghai High People's Court declined to comment on Monday.